Breakingviews - Healthcare IPO examines value of China’s big tech

A doctor reads medical images on a screen during a diagnostic competition between an AI machine and human experts at the China National Convention Center in Beijing, China, June 30, 2018. Picture taken June 30. China Daily/via REUTERS

HONG KONG (Reuters Breakingviews) - is offering a timely reminder of why big technology firms are valuable to Beijing. The e-commerce giant’s healthcare arm has priced shares in its initial public offering at a reasonable 13 times sales. The $3.5 billion deal is set to be the biggest IPO in Hong Kong this year after an abrupt regulatory halt to the debut of Ant, the Alibaba payments affiliate, in November. As Chinese officials also scrutinise competitive practices of internet platforms, the healthcare sector underscores a symbiotic relationship.

The pandemic has boosted demand for digital, contactless medical services. JD Health International was China’s largest online retail pharmacy by revenue in 2019, according to its prospectus, and was the first to offer online appointments for Covid-19 nucleic acid tests. Daily online consultations leapt to nearly 90,000 in the first half of 2020, almost six times more than the same period last year. The company’s topline grew 33% year-on-year in 2019 and accelerated to 76% in the six months of 2020, roughly the same pace of its closest rival, $39 billion Alibaba Health Information Technology, in its interim period. The bulk of JD Health’s business is in direct sales of medicines and other products. Other services include an over-9,000-merchant-strong online marketplace and digital marketing.

Assume JD Health’s enterprise value reaches $28 billion at the high-end of the range, after subtracting some $486 million in cash and cash equivalents as of June. Its roughly $2.2 billion in revenue for trailing twelve months implies a sales multiple of nearly 13 times, below Alibaba Health’s 18 times and in line with Ping An Healthcare and Technology, which runs the Good Doctor app, per Refinitiv data. Alibaba Health has more annual active users and turned a net profit in the six months ended September, while JD Health was loss-making in the first half of this year.

It’s a smart area for and its peers to tap into: China’s National Development and Reform Commission supports the buildout of internet healthcare in a country where overcrowded hospitals and long wait times are a problem. Given the sensitive nature of the sector, there will perhaps also be less regulatory surprises than there have been of late in e-commerce and payments. Big traditional companies in China have long served official goals, and it helps internet companies to play the part too.


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